EDITORIAL: State public benefits require reform, now

If there's a silver lining to Michigan's $800 million budget crisis, it should be this — the state has an obvious excuse to defuse the time bomb that public employee benefits are creating.

That's not meant as an attack upon public employees. We personally know many whose hard work and dedication credit their professions. However, we also know hard-working auto industry employees whose wages and benefits could no longer be sustained. Their industry is in jeopardy today and, because changes came late, bankruptcy has become the catalyst for change.

Michigan must make immediate public sector reforms to prevent similar meltdowns. Rather than solve the problem, a quick-fix tax increase such as that suggested by Gov. Jennifer Granholm would only encourage the situation to grow worse.

How far out of control is benefit spending?

— Studies show that school spending for pensions and health benefits continues to rise at an alarming rate. They represented 10.8 percent of school payroll in 1991, are 17.7 percent currently and are projected to hit more than 30 percent by 2020.

— The state is falling behind in funding its worker retirement system. It was 99 percent funded in 1999, but only 83.7 percent funded as of 2004. Teacher health care alone reportedly is underfunded by $15 billion, which is more worrisome due to the growing ratio of retired versus active members; 25 percent of school employees retire by age 55.

— The Michigan Education Special Services Association, a state teachers' union insurance affiliate, doesn't seem to understand Michigan residents' plight. In a Feb. 2 news release, MESSA officials listed some cost-saving steps taken by its members. The final item stated, "42 percent pay part of their monthly premium." That, of course, implies that 58 percent pay no premium. How many Michigan taxpayers pay no health premium?

We're aware that some public staff contracts have at times chosen benefits over big pay hikes. Still, the gap between school employee compensation and that of ordinary Michigan taxpayers is growing. Since 2000, Michigan household income is down between 6 and 12 percent (depending on which estimate one uses). Meanwhile, Michigan's state and local tax burden is up, according to the Tax Foundation, from 10.5 percent of total income in 1991 to 11.2 percent today.

And, despite complaints of cuts in school funding, actual state school aid fund spending has increased 13.3 percent since 2000, from $9.9 billion to $11.2 billion according to the Senate Fiscal Agency. The problem is that, while education funding grew by $175 per pupil from 2003 to 2006, school retiree costs per pupil wiped out any gain by increasing $178.

Reform possibilities include:

— Health insurance for school staff must be pooled with that of other public employees and put out for competitive bid. A plan supported by Sen. Cameron Brown, R-Fawn River Twp., would save an estimated minimum of 8 percent on such premiums.

— New staff must be hired by districts with benefit rates that will allow districts to continue funding existing obligations. This means following the private sector in switching to defined contribution savings programs, such as 401(k) plans, instead of relying on defined benefit programs.

In order to ensure reforms, taxpayers should not be hit with any new taxes until the state makes the overdue cuts in benefit and pension costs. Michigan's public employees can be certain that history will indeed repeat itself if the lesson provided by the auto industry is not learned quickly — and drastic changes made soon. The old system is unsustainable in today's Michigan economy, and ordinary citizens are less able than ever to pay new taxes to fix a systemic problem.